AstraZeneca's Growth Outlook Continues to Look Strong

AstraZeneca AZN reported fourth-quarter results that were slightly ahead of our and company-reported consensus expectations, but we don't expect to make any major changes to our fair value estimate based on the minor outperformance. Astra looks moderately undervalued, with the market not likely fully appreciating the firm's recently launched drugs, an improving operating margin structure, and a strong lineup of new drugs, all of which also support the firm's wide moat rating. In the quarter, total sales increased 10% operationally, with strong cancer drug growth offsetting pressure from mature products. We expect continued strong cancer drug sales to accelerate total sales growth over the next two years and drive margin expansion based on the strong pricing power in oncology. Lung cancer drug Tagrisso (up 28% in the quarter) looks poised for more gains based on the excellent data in the adjuvant setting, which was added to the label in the U.S. in late 2020. Also, the recently launched blood cancer drug Calquence is taking share from market leader Imbruvica, with close to a third of new front-line chronic lymphocytic leukemia patients choosing Calquence based on strong efficacy and a better safety profile. Further, while cancer drugs Imfinzi (up 29%) and Lynparza (up 40%) will likely show decelerating growth, we still expect significant gains based on growth in recently added indications. Outside oncology, cardiometabolic drug Farxiga (up 40%) is showing strong resiliency in a drug class marred by pricing pressures, as we believe its breadth of indications is helping drive sales. Beyond strong expected growth from launched drugs, Astra also is making good progress on the late-stage pipeline. We are most bullish on asthma drug tezepelumab and lupus drug anifrolumab, both of which could reach the market in the next 12 months. On clinical readouts, the phase 3 Enhertu study in HER2 low breast cancer is potentially the biggest study for Astra in 2021. Astra continues to make strides on its COVID-19 vaccine and should have U.S. data later in the first quarter along with antibody and repurposed drugs (Farxiga, Symbicort and Pulmicort) treatment data in the first half of 2021.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.